IPEC reviews pension funds reporting requirements
The Insurance and Pensions Commission (IPEC) is reviewing how pension funds report their finances due to concerns about their failure to accurately reflect the impact of high inflation, as required by international accounting standards.
In a circular to pension funds, the new reporting guidelines will be effective for audited financial statements with a year-end of December 31, 2025, although early adoption is recommended.
The guidelines follow the issuance of Circular 24 of 2022, which stated that only pension funds should comply with International Accounting Standards 29 — Financial Reporting in Hyperinflationary Economies.
However, IPEC has observed non-compliance in the audited financial statements submitted following the issuance of Circular 24.
These include instances where pension funds received qualified opinions on their audits due to non-compliance with IAS 29, which resulted in a deviation from International Financial Reporting Standards (IFRS).
“Year-on-year comparisons are distorted because the historical figures for the comparative year are not adjusted for inflation, resulting in artificially low comparative numbers,” reads the circular.
Furthermore, IPEC said that reported figures do not accurately reflect the true economic reality, potentially disadvantaging members and leading to misstated ratios used to assess industry performance.
Additionally, there are inconsistencies in how financial information is disclosed, and some funds have not accurately reflected the impact of currency fluctuations on their finances, as required by international accounting standards.
IPEC issued these guidelines based on its legal authority to set rules for how pension funds are managed and operated in Zimbabwe.
According to IPECs’ 2024 third quarter pensions report, the industry’s total assets were US$2,16 billion, an 11,3 percent increase from US$1,94 billion reported during the same period in 2023.
Contribution arrears were US$53,81 million constituting 2,5 percent of the industry’s assets, representing an increase of 53,04 percent from US$35,16 million in the prior year wherein contribution arrears constituted 1,81 percent of total industry assets.
“The increase, though affected by exchange rate distortions, is also an indicator of a growing challenge of non-remittance of contributions by fund sponsors as they fall due.
“Section 16(8) of the Pensions and Provident Act gave the Commission powers to garnish bank accounts of sponsoring employers who are not remitting contributions to the fund and the Commission has since commenced instituting processes to garnish the accounts of defaulting employers as required by the Act,” reads part of the report.
During the quarter under review, the pension industry’s assets were heavily concentrated in investment properties and quoted equities, which together made-up 69 percent of the total asset portfolio.
Investment properties were valued at US$961 million representing 45 percent of total assets, and a decrease from US$1,1 billion.
The decrease was due to the channelling of investments to other asset classes as well as the reclassification of some investment property to prescribed assets.
The industry’s foreign currency-denominated assets increased by 60 percent from US$326 million on 30 September 2023 to US$521,6 million on 30 September 2024.
They now constitute 24,1 percent of the total pension assets.
“The increase arose from reinvestment of returns from already existing forex assets and making new investments with the residual forex income,” said the report.
The major asset classes were quoted equities, investment property, prescribed assets, contribution arrears and money market investments, which constituted 32 percent, 28 percent, 11 percent, 7,7 percent and 7,6 percent, respectively.
The asset classes constitute 86 percent of the total forex assets in the period.herald
